Friday, May 26, 2006

According to today's Commerce Department release -- the "preliminary" Gross Domestic Product (GDP) report for the first-quarter of 2006 -- the U.S. economy grew at an annual rate of 5.3% in Q1, 2006. The Fed pays close attention to a component of the GDP data: the Core Personal Consumption Expenditures Price Index, which rose at a 2% annual rate in Q1. The "preliminary" GDP report contains data that's more accurate than the "advance" GDP report that was released last month. The "final" GDP report for Q1, which is due to be released on June 29--the same day that the Federal Open Market Committee (FOMC) will adjourn their next monetary policy meeting--will contain the most authoritative data for Q1.

The Latest Odds on Another Prime Rate Increase At The End of June

The investors who trade in Federal Funds Futures now have odds at 58% (according to current pricing) that the FOMC will vote to raise the benchmark Fed Funds Target Rate from 5.00% to 5.25% at the June 28-29 monetary policy meeting. If the Federal Funds Target Rate is bumped up to 5.25% , then--you guessed it--the U.S. Prime Rate (Wall Street Journal® Prime Rate) will jump from the current 8.00%, to 8.25% when the June 29 meeting adjourns.

The odds related to the Fed Funds Futures trade--widely accepted as the best prognosticator of where the FOMC will take the benchmark Fed Funds Target Rate--are continually changing, so stay tuned for the latest odds, especially when The FOMC releases the minutes from the May 10, 2006 monetary policy meeting, which should happen on Wednesday (May 31.)

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